Powell Reinforces View That Inflation is Transitory

Q: How would you describe the balance of risks to inflation? Are you worried about Delta downside risks to the outlook?

• A: The most recent inflation report came in significantly higher than expected, but essentially all of the overshoot can be tied to a handful of categories, not the kind of inflation that's spread broadly across the economy. It's new, used, rental cars, airplane tickets, hotels, etc. Each of those has a story attached to it, related to the reopening of the economy.
• We think those are temporary things because the supply side will respond, the economy will adapt. We have a very adaptable flexible economy and labor market. So we think that inflation should move down over time.
• We didn't have much confidence in the timing of that, or the size of the effects in the near term. In the near term the risks to inflation are probably to the upside. I have some confidence in the medium term, that inflation will move back down. Again, it's hard to say when that will be.
• Price stability is half our mandate. If we were to see inflation moving up to levels persistently that were above significantly, materially above our goal, particularly if inflation expectations were to move up, we would use our tools to guide inflation back down to 2%.
• We won't have an extended period of high inflation. We think that some of it will fall away naturally as the process of reopening the economy proceeds. It could take some time. In any case, we'll use our tools as appropriate to make sure that we do have inflation that averages 2% over time.